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Rand Capital Announces Fourth Quarter and Full Year 2018 Results

March 7, 2019 8:30 AM

BUFFALO, N.Y.--(BUSINESS WIRE)-- Rand Capital Corporation (Nasdaq: RAND) (“Rand”), a venture capital company which invests in growth businesses with unique product, service or technology concepts, announced its results for the quarter and year ended December 31, 2018.

Allen F. (“Pete”) Grum, President and Chief Executive Officer of Rand Capital, commented, “We are diligently working with East Asset Management on the proposed $25 million investment in Rand, announced in late January. This will be an exciting and transformational event for Rand and our shareholders.”

He added, “As previously announced, we were pleased to receive a $6 million funding commitment from the U.S. Small Business Administration in December. Our investing activity increased to a more normal level in the fourth quarter, as we provided capital to five companies in support of their growth plans.”

Fourth Quarter and Full Year 2018 Financial Highlights

Total investment income in the fourth quarter of 2018 grew 76% to $668,000, up from $380,000 in the fourth quarter of 2017. The $288,000 increase included approximately $114,000 of incremental interest and $156,000 of incremental dividends and other distributions, as well as increases in other income. Total expenses in the 2018 and 2017 fourth quarters were $684,000 and $448,000, respectively. Excluding bonuses, 2018 fourth quarter expenses were $559,000, compared with $436,000 last year. The increase was driven by higher professional fees primarily due to the pending strategic investment that was announced on January 25, 2019.

Total investment income was $2.1 million and $1.5 million for the years ended December 31, 2018 and 2017, respectively. The growth was driven by higher interest and dividend income as well as loan restructuring income in the third quarter. Total expenses for the year were approximately

$2.2 million in 2018, up from $2.0 million in 2017.

Selected Portfolio Highlights

As of December 31, 2018, Rand’s portfolio consisted of 30 active companies. At that date, the portfolio was comprised of approximately 59% in equity investments and 41% in debt investments, compared with 57% in equity investments and 43% in debt investments at December 31, 2017.

Webcast and Conference Call

Rand will host a conference call and live webcast today, March 7, 2019, at 4:30 p.m. Eastern Time to review its financial condition and results for the 2018 fourth quarter and full year, as well as its strategy and outlook. The review will be accompanied by a slide presentation, which will be available on Rand’s website at www.randcapital.com under the “Investor Relations” heading. A question-and-answer session will follow the formal presentation.

Rand’s conference call can be accessed by calling (201) 689-8263. Alternatively, the webcast can be monitored on Rand’s website at www.randcapital.com under the “Investor Relations” heading.

A telephonic replay will be available from 7:30 p.m. ET on the day of the call through Thursday, March 14, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13687508. The webcast replay will be available in the Investors section at www.randcapital.com, where a transcript will also be posted once available.

ABOUT RAND CAPITAL

Rand Capital (Nasdaq: RAND) provides investors the ability to participate in venture capital opportunities through an investment in the Company’s stock. Rand is a Business Development Company (BDC) with a wholly-owned subsidiary licensed by the U.S. Small Business Administration (SBA) as a Small Business Investment Company (SBIC). Rand focuses its equity investments in early

or expansion stage companies and generally lends to more mature companies. The Company seeks investment opportunities in businesses with strong leaders who are bringing to market new or unique products, technologies or services that have a high potential for growth. Additional information can be found at the Company’s website where it regularly posts information: http://www.randcapital.com/.

Safe Harbor Statement

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than historical facts, including but not limited to statements regarding the expected timing of the closing of the proposed transactions; the ability of the parties to complete the proposed transactions considering the various closing conditions, including receipt of necessary shareholder approvals and approval from the Small Business Administration; the intention of Rand Capital to elect to be become a regulated investment company for U.S. federal tax purposes; the intention to declare and pay a special cash and stock dividend upon the closing of the proposed transactions; the intention to pay a regular cash dividend after the completion of the proposed transactions; the expected benefits of the proposed transactions such as a lower expense-to-asset ratio for Rand Capital, increased net investment income, availability of additional resources, expanded access to and sourcing platform for new investments and streamlining of operations under the external management structure; the business strategy of originating additional income producing investments; the competitive ability and position of Rand Capital following completion of the proposed transactions; and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue,” “target” or other similar words or expressions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1)�that one or more closing conditions to the transactions may not be satisfied or waived, on a timely basis or otherwise, including that the SBA may not approve the proposed transactions or that the required approvals by the shareholders of Rand Capital may not be obtained; (2)�the risk that the proposed transactions may not be completed in the time frame expected by parties, or at all; (3)�the risk that Rand Capital may be unable to fulfill the conditions required in order to elect to be treated as a regulated investment company for U.S. federal tax purposes; (4)�uncertainty of the expected financial performance of Rand Capital following completion of the proposed transactions; (5)�failure to realize the anticipated benefits of the proposed transactions, including as a result of delay in completing the proposed transactions; (6) the risk that Rand Capital is unable to declare the special cash and stock dividend or pay regular dividends on a going forward basis; (7)�the occurrence of any event that could give rise to termination of the stock purchase agreement; (8)�the risk that shareholder litigation in connection with the proposed transactions may affect the timing or occurrence of the contemplated transactions or result in significant costs of defense, indemnification and liability; (9)�evolving legal, regulatory and tax regimes; (10)�changes in general economic and/or industry specific conditions; and (11)�other risk factors as detailed from time to time in Rand Capital’s reports filed with the Securities and Exchange Commission (“SEC”), including Rand Capital’s annual report on Form�10-K�for the year ended December�31, 2018, quarterly reports on Form�10-Q,�current reports on Form�8-K�and other documents filed with the SEC. Consequently, such forward-looking statements should be regarded as Rand Capital’s current plans, estimates and beliefs. Except as required by applicable law, Rand Capital assumes no obligation to update the forward-looking information contained in this release.

FINANCIAL TABLES FOLLOW.

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Financial Position

� � � � � �
December 31,
� 2018 � � 2017 �

ASSETS

Investments at fair value:
Control investments (cost of $99,500) $ 99,500 $ 99,500
Affiliate investments (cost of $20,708,659 and $20,871,129, respectively) 17,026,091 17,016,795
Non-Control/Non-Affiliate investments (cost of $17,483,984 and $15,718,690, respectively) � 17,541,213 � � 15,167,767 �
Total investments, at fair value (cost of $38,292,143 and $36,689,319, respectively) 34,666,804 32,284,062
Cash and cash equivalents 4,033,792 6,262,039
Interest receivable (net of allowance: $161,000) 145,532 231,048
Deferred tax asset 525,198 551,863
Prepaid income taxes 1,138,708 762,047
Other assets � 11,690 � � 42,854 �
Total assets $ 40,521,724 � $ 40,133,913 �
�

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

Liabilities:
Debentures guaranteed by the SBA (net of debt issuance costs) $ 8,554,443 $ 7,855,173
Profit sharing and bonus payable 125,000 144,000
Accounts payable and accrued expenses 245,758 178,348
Deferred revenue � 72,336 � � 37,707 �
Total liabilities 8,997,537 8,215,228
�
Stockholders’ equity (net assets):
Common stock, $0.10 par; shares authorized 10,000,000; shares issued 6,863,034;
shares outstanding of 6,321,988 at 12/31/18 and 12/31/17 686,304 686,304
Capital in excess of par value 10,581,789 10,581,789
Accumulated net investment loss (1,665,552 ) (1,597,146 )
Undistributed net realized gain on investments 26,221,443 27,215,738
Net unrealized depreciation on investments (2,830,692 ) (3,498,895 )
Treasury stock, at cost: 541,046 shares � (1,469,105 ) � (1,469,105 )
Total stockholders’ equity (net assets) (per share 2018: $4.99; 2017: $5.05) � 31,524,187 � � 31,918,685 �
Total liabilities and stockholders’ equity (net assets) $ 40,521,724 � $ 40,133,913 �
�

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

� � � � � �

For the Quarter Ended
December 31,

For the Year Ended
December 31,

� 2018 � � � � 2017 � � 2018 � � � � 2017 �
Investment income: � � � �
Interest from portfolio companies:
Affiliate investments $ 225,648 $ 147,461 $ 741,432 $ 563,708
Non-Control/Non-Affiliate investments � 209,755 � � � � 174,202 � � 757,308 � � � � 591,608 �
Total interest from portfolio companies � 435,403 � � � � 321,663 � � 1,498,740 � � � � 1,155,316 �
�
Interest from other investments:
Non-Control/Non-Affiliate investments � 16,897 � � � � 6,579 � � 37,614 � � � � 30,761 �
Total interest from other investments � 16,897 � � � � 6,579 � � 37,614 � � � � 30,761 �
�
Dividend and other investment income:
Control investments 60,000 - 60,000 -
Affiliate investments 142,419 43,739 318,324 233,544
Non-Control/Non-Affiliate investments � - � � � � 2,472 � � 6,058 � � � � 10,070 �
Total dividend and other investment income � 202,419 � � � � 46,211 � � 384,382 � � � � 243,614 �
�
Fee income:
Affiliate investments 4,042 2,166 15,667 8,416
Non-Control/Non-Affiliate investments � 9,564 � � � � 3,368 � � 170,551 � � � � 16,675 �
Total fee income � 13,606 � � � � 5,534 � � 186,218 � � � � 25,091 �
Total investment income � 668,325 � � � � 379,987 � � 2,106,954 � � � � 1,454,782 �
�
Expenses:
Salaries 169,875 165,411 679,499 661,650
Bonus and profit sharing 125,000 12,000 125,000 12,000
Employee benefits 45,977 22,256 194,818 160,779
Directors' fees 36,627 34,876 128,750 142,499
Professional fees 186,386 46,308 407,159 356,936
Stockholders and office operating 53,173 55,795 230,050 249,085
Insurance 6,599 6,258 34,187 31,876
Corporate development 20,647 15,264 62,117 65,202
Other operating � 11,102 � � � � 12,620 � � 21,092 � � � � 20,675 �
655,386 370,788 1,882,672 1,700,702
Interest on SBA obligations 78,594 77,569 311,000 310,275
Bad debt recovery � (50,342 ) � � � - � � - � � � � - �
Total expenses � 683,638 � � � � 448,357 � � 2,193,672 � � � � 2,010,977 �
Net investment loss before income taxes (15,313 ) (68,370 ) (86,718 ) (556,195 )
Income tax expense (benefit) � 6,495 � � � � (347,936 ) � (18,312 ) � � � (536,897 )
Net investment (loss) gain � (21,808 ) � � � 279,566 � � (68,406 ) � � � (19,298 )
�
Net realized (loss) gain on sales and dispositions of investments:
Affiliate investments (338,469 ) - (1,464,142 ) -
Non-Control/Non-Affiliate investments � - � � � � 138,240 � � - � � � � 138,240 �
Net realized (loss) gain on sales and dispositions before income tax (benefit) expense (338,469 ) 138,240 (1,464,142 ) 138,240
Income tax (benefit) expense � (63,108 ) � � � 49,556 � � (469,847 ) � � � 49,556 �
Net realized (loss) gain on sales and dispositions of investments (275,361 ) 88,684 (994,295 ) 88,684
�
Net change in unrealized depreciation or appreciation on investments:
Affiliate investments 438,975 794,990 608,207 129,315
Non-Control/Non-Affiliate investments � 1,073,071 � � � � (81,715 ) � 171,711 � � � � (404,023 )
Change in unrealized depreciation or appreciation before income tax expense (benefit) 1,512,046 713,275 779,918 (274,708 )
Deferred income tax expense � 278,366 � � � � 855,316 � � 111,715 � � � � 505,356 �
Net change in unrealized depreciation or appreciation on investments � 1,233,680 � � � � (142,041 ) � 668,203 � � � � (780,064 )
�
Net realized and unrealized gain (loss) on investments � 958,319 � � � � (53,357 ) � (326,092 ) � � � (691,380 )
Net increase (decrease) in net assets from operations $ 936,511 � � � $ 226,209 � $ (394,498 ) � � $ (710,678 )
Weighted average shares outstanding 6,321,988 6,321,988 6,321,988 6,321,988
Basic and diluted net increase (decrease) in net assets from operations per share $ 0.15 � � � $ 0.04 � $ (0.06 ) � � $ (0.11 )

Company:

Allen F. ("Pete") Grum

President and CEO

Phone: 716.853.0802

Email: [email protected]



Investors:

Deborah K. Pawlowski / Karen L. Howard

Kei Advisors LLC

Phone: 716.843.3908 / 716.843.3942

Email: [email protected] / [email protected]

Source: Rand Capital Corporation

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